Problem: You are a bond-buyer for the brokerage firm Wecan-Barely-Ketchum, and you have three separate parties interested in purchasing bonds from your available portfolio selection. Group 1 requires a minimum 15% yield. Group 2 has said that they are out for a quick killing and will settle for no less than 8%, but do not require more than that. Group 3 is a very conservative group looking for a safe 12% yield, no more, no less. Funny how people’s perception of their own risk tolerance is so different, isn’t it? Given that you have the following bonds in your portfolio, can you satisfy their needs? Please calculate the Yield to Maturity for each bond and match, as closely as possible, an appropriate bond with a respective buyer.
Bond A Bond B Bond C
Coupon Rate 10% 8% 13%
Par Value $1,000 $1,000 $1,000
Bond Price $1,125 $ 825 $1,050
Maturity 10 years 3 years 15years